Learn To Sell To Avoid Letting Gain Turn Into A Loss

What's worse than seeing your stock fall? Seeing it fall after it had posted a nice advance.

Cutting out a stock before a gain turns into pain is tough. It's counterintuitive. That stock likely may be just above an important price support level. And it may be a good stock, with fat earnings growth and an exciting story. After all that work, you won't really want to dump it.

Now let's make this more difficult. Selling a stock as it dips below your buy point isn't always called for. A low-volume dip, just as the broad market is doing the same, may be just a temporary decline. There's no sell signal here. The market's uptrend is intact. OK, so give it some room — especially if you're having a good year.

When? Like when the stock behaves horribly after a breakout. It bolted higher, then started backing off. Maybe the entire market was turning bad. One can't say which is worse, except that it amounts to the same thing.

So when conditions turn south fast, you aren't obligated to wait for that 8% loss until selling. Making 3% or 4%, or breaking even on the trade, is a much better outcome, even if the stock recovers.

The recent price-and-volume action by Alaska Air Group (ALK) and ARM Holdings (ARMH) provide proof today.

Don't feel bad if you let a big gain shrink to almost nothing. Instead, learn from the experience.

You likely missed key sell signals, or you ignored the 20%-25% profit rule. Regardless, you need to sell to preserve even a small gain and avoid a serious loss. Go back to the chart and see what you missed.

Now consider perhaps the toughest scenario: You latched onto a stock that bolted higher more than 20% in just two weeks. That triggers the eight-week rule, which says you should hold on for a total of eight weeks, then see if it's worth holding longer.

But the eight-week rule isn't perfect. And you're seeing a gain of 35% dwindle to single digits. The stock and the market show heavy downside volume. There's no point in crying about the lost 35% gain. Learning to sell defensively will help you win in the long run.

At a CAN SLIM Masters workshop in Santa Monica, Calif., Charles Harris, a portfolio manager for O'Neil Data Systems, was asked what was the single-most important key to successful investing.

"Money management," he said.

What's worse than seeing your stock fall? Seeing it fall after it had posted a nice advance.

Cutting out a stock before a gain turns into pain is tough. It's counterintuitive. That stock likely may be just above an important price support level. And it may be a good stock, with fat earnings growth and an exciting story. After all that work, you won't really want to dump it.

Now let's make this more difficult. Selling a stock as it dips below your buy point isn't always called for. A low-volume dip, just as the broad market is doing the same, may be just a temporary decline. There's no sell signal here. The market's uptrend is intact. OK, so give it some room — especially if you're having a good year.

When? Like when the stock behaves horribly after a breakout. It bolted higher, then started backing off. Maybe the entire market was turning bad. One can't say which is worse, except that it amounts to the same thing.

So when conditions turn south fast, you aren't obligated to wait for that 8% loss until selling. Making 3% or 4%, or breaking even on the trade, is a much better outcome, even if the stock recovers.

The recent price-and-volume action by Alaska Air Group (ALK) and ARM Holdings (ARMH) provide proof today.

Don't feel bad if you let a big gain shrink to almost nothing. Instead, learn from the experience.

You likely missed key sell signals, or you ignored the 20%-25% profit rule. Regardless, you need to sell to preserve even a small gain and avoid a serious loss. Go back to the chart and see what you missed.

Now consider perhaps the toughest scenario: You latched onto a stock that bolted higher more than 20% in just two weeks. That triggers the eight-week rule, which says you should hold on for a total of eight weeks, then see if it's worth holding longer.

But the eight-week rule isn't perfect. And you're seeing a gain of 35% dwindle to single digits. The stock and the market show heavy downside volume. There's no point in crying about the lost 35% gain. Learning to sell defensively will help you win in the long run.

At a CAN SLIM Masters workshop in Santa Monica, Calif., Charles Harris, a portfolio manager for O'Neil Data Systems, was asked what was the single-most important key to successful investing.

Stocks clung to small losses with a little more than one hour remaining in Monday's session in another constructive day. The Dow Jones industrial average gave up 0.3%, the S&P 500 lost 0.2% and the Nasdaq eased 0.1%. NYSE volume was tracking lower than Friday's level. Nasdaq volume was tracking ...

ARM Holdings (NASDAQ:ARMH) received a price target increase Monday, as an analyst expects its chip designs used in enterprise networking and server markets to re-accelerate royalty growth. The Cambridge, England-based chipmaker designs and licenses chip technology that goes into more than 95% of ...

The chip business may be cyclical, but times sure are good now. According to the Semiconductor Industry Association, the global chip industry delivered record sales of $335.8 billion in 2014, up 9.9% from 2013. In December alone, global sales totaled $29.1 billion, marking the strongest December on ...

The Nasdaq climbed toward what would be its seventh up day in a row as the market approached the noon hour. Volume was running not far from even vs. the previous session in the stock market. The Nasdaq rose 0.4% while the S&P 500 added close to 0.1%. The Dow Jones industrial average fell 0.1%. ...

02/19/2015 11:55 AM ET

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